CalSTRS CIO Says Trump Tweets are a ‘Key Market Risk’ to Monitor

During a recent board meeting in July, Christopher Ailman, the chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said President Donald Trump’s behavior on Twitter was one of his top concerns as governor of the $237 billion portfolio.

“The number one thing on my mind was trade fight and trade wars, and that obviously links to the president’s tweets,” Ailman said. “Who knows that would come together.”

Global markets endured significant turbulence because of concerns about trade talks with China breaking down, Ailman said. “There’s more volatility in the trade talks than I think the US is used to, and that’s in part because we have a very unique White House than we’ve had before. It’s more real estate kind of negotiation, which is pretty rough-and-tumble.”

President Trump has used the platform, where he has over 62 million followers, to announce major political and diplomatic decisions. Amongst some of the more consequential tweets was his announcement to raise tariffs on $200 billion of Chinese imports from 10% to 25% on May 5.

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As a direct consequence of the tweet, US equities fell sharply and volatility spiked. Companies with strong links or operations connected to China, such as technology and machinery stocks, were on the front lines of the decline.

A study carried out by the University of Nottingham concluded that “the effect of a positive and negative tweet on abnormal returns is statistically and economically significant as the effect on returns usually follows the sentiment of the tweet (a positive tweet leads to positive abnormal returns).” The study also found that a positive tweet by Trump has more of an effect on the market than a negative tweet.

The effects are generally temporary, the study found, and last approximately two to three days on average. The study also suggests that the president “does indeed use Twitter as a strategic tool to influence the stock price and hence the actions of target companies.”

The other key risks Ailman is monitoring are Iranian aggression, a European recession induced by Germany and France, unrest in Hong Kong and Taiwan, consumer sentiment, program trading volatility, and Brexit.

On the plus side, of which there are many in today’s bull market, Ailman pointed out the economy has been growing at a steady pace over the past few years—about 2.5% to 3% in GDP growth annually, what he calls a “Goldilocks” economy. He added that employment statistics remain “very strong”, and unemployment claims are at 50-year lows.

Ailman also noted he’s braced for unexpected circumstances that could shake local and global markets. The threats were spread across summer heat waves, cyberattacks, earthquakes, lone wolf terrorism, the Middle East conflict, Russian aggression, and pandemics stemming from swine or bird flu.

Tags: CalSTRS, Chris Ailman, Donald Trump, Pension, Trump Tweets, Twitter

The UK’s Financial Conduct Authority (FCA) has fined Standard Life Assurance Limited (SLAL) just under £30.8 million ($38.3 million) for failures related to non-advised sales of annuities.

According to the FCA’s final notice, SLAL failed to put in place adequate controls to monitor the quality of the calls between its handlers and non-advised customers. At the same time, SLAL offered its front-line staff large financial incentives to sell annuities, which encouraged them to place their own financial interests ahead of their customers.

The FCA said this led to a significant risk that SLAL’s call handlers would fail to provide customers with the information they needed to choose an annuity appropriate to their circumstances.

“A customer requires accurate information when choosing an annuity, because it is a complex financial product,” said the FCA in a statement. “This is especially so for non-advised sales, where the customer selects the annuity based on factual information and does not receive financial advice.”

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The FCA said companies are required by law to explain to customers that they may get a better rate if they shop around on the open market. It said firms need to provide “clear, fair, and not misleading information about enhanced annuities” to help the customer make an informed decision.

The notice said SLAL used high-level call guidelines which gave call handlers significant discretion about how they communicated with customers. This meant that the firm failed to provide some customers with appropriate information about enhanced annuities, including the option to shop around.

SLAL’s call handlers had the opportunity to receive significant bonuses and rewards if they met or exceeded sales targets, according to the notice. It said that nearly 22% of call handlers received more than 100% of their basic salary in bonus payments, which indicated a strong risk that call handlers had a conflict of interest.

“Standard Life Assurance Limited’s controls needed to place fairness to customers at their heart,” Mark Steward, the FCA’s executive director of enforcement and market oversight, said in a statement. “Here, the financial incentives available to staff for selling non-advised annuities by telephone created conflicts which led to unfair outcomes for some customers. Firms must have controls in place to ensure they are prioritising fairness to customers.”

The FCA said SLAL voluntarily agreed to conduct a past business review to identify and pay redress to customers who were likely to have suffered, or did suffer, loss as a result of its failures. It said that as of May 31, SLAL had paid approximately £25.3 million to more than 15,000 customers.

SLAL did not dispute the FCA’s findings, and the company’s agreement to accept the FCA’s findings meant it qualified for a 30% discount. Otherwise, the FCA would have imposed a financial penalty of nearly £44 million.

SLAL, which was formerly a subsidiary of Standard Life Aberdeen, was acquired in 2018 by Phoenix Group.

“While this is an historic issue and one we were aware of when we acquired Standard Life Assurance Limited, we would like to apologize to affected customers, all of whom we have already been in contact with as part of the program of customer redress,” Susan McInnes, CEO of Standard Life Assurance Limited and Phoenix Group director, said in a statement. “Our remediation program for affected customers is progressing well and we expect it to be completed by the end of the year.”

Tags: Financial Conduct Authority, Pension, Standard Life Assurance Limited, UK